The Uneven Playing Field in South African Business
Small business is acknowledged to be the most promising sector for growing the economy and employment in the South African domestic sector. From an arms length perspective, the sector now has its own dedicated Ministry whose aim is to create an enabling environment for small businesses to thrive. In this regard, there have been growing calls from this department for established business to make it less cumbersome for small businesses to enter their value chain and become suppliers of services and goods. This is especially true for black, female owned businesses that continue to face the odds when trying to secure business.
What has not been spoken enough about is the difficult environment in which small businesses, especially services companies, have to contend with when dealing with government procurement. Government procurement provides one of the biggest opportunities for small companies to grow themselves and become established players in the economy. Through the public tendering process, companies can move from being survivalist, to thriving. Despite this, government remains the most difficult sector to penetrate. The burden of proof of capability, contrary to popular belief, tends to be higher in the public sector. Companies are required to provide extensive lists of prior experience, compliance with all manner of regulatory requirements (audited statements, tax certificates, VAT registration, UIF etc). The former can be especially difficult to satisfy for newly established companies that do not necessarily have a track record. This can be especially galling when business owners have the professional experience in their chosen area of endeavour, but only lacking in the operational experience of delivering the same service within their own business.
Government needs to reconsider some of the cumbersome requirements they have to ensure that deserving businesses are provided the opportunity to render services to the public sector. The truth is, important as operational experience within a smaller company setting may be, it is critically important for the professional experience of business owners to receive a higher regard from tender adjudicators. This in no way is to suggest that government must adopt lax requirements when dealing with small businesses. It is possible to put in place measures that test capability without necessarily requesting companies to supply extensive lists of previous work, especially where the professional experience of business owners is enough to satisfy the requirements for proving capability.
It may also be worth considering grading the tendering process according to company turnover. This would prevent companies with turnover beyond a certain democratically set turnover from tendering for work below a certain threshold. For instance, work below R1 million could be set aside for companies that have a turnover of x amount in order to ensure that such companies are not overwhelmed by their bigger counterparts. Conversely, companies with the same x turnover would not be permitted to bid for work in excess of Y amount. This would create a level playing field for companies within the same category. It may also act as an incentive and a push factor for companies to continually strive to better themselves in order to play at the next level. The current system of minnows being permitted to bid for large projects creates incentives for companies to overreach and submit fancy proposals for work that they may not have the capability to deliver. Sometimes this is made possible by access to insider information and pleasantly disposed decision makers who are sometimes influenced by factors other than competence.
The precise process of how this ought to be done could be a matter for consideration. As a principle, it ought to be less controversial to accept that it can be difficult for a business with a turnover of ZAR1 million to compete with a counterpart with a turnover of ZAR50 million. Whenever this occurs, the odds are that the latter will always come out on top, which can be demoralising for people who have taken the already difficult decision to strive for creating wealth, employment and prosperity by risking it all.
Of course, nobody said business is an easy thing. If anything, it is probably one of the riskiest things one can ever venture into. However, it does not mean that purely because it is not easy, no steps can be taken to make it easier. If we are to promote entrepreneurship at the scales we need it, a lot more needs to be done.